General Comments:
Division 40, Subdivision 40-D, Section 40-340, Subdivision 328-G and Sections 328-430 and 328-450 of this Act have been modified by the operation of the Commissioner’s Remedial Power, click here to see the modification

This is a compilation of the Income Tax Assessment Act 1997 that shows the text of the law as amended and in force on 29 October 2019 (the compilation date).

The notes at the end of this compilation (the endnotes) include information about amending laws and the amendment history of provisions of the compiled law.

Uncommenced amendments

The effect of uncommenced amendments is not shown in the text of the compiled law. Any uncommenced amendments affecting the law are accessible on the Legislation Register (www.legislation.gov.au). The details of amendments made up to, but not commenced at, the compilation date are underlined in the endnotes. For more information on any uncommenced amendments, see the series page on the Legislation Register for the compiled law.

Application, saving and transitional provisions for provisions and amendments

If the operation of a provision or amendment of the compiled law is affected by an application, saving or transitional provision that is not included in this compilation, details are included in the endnotes.

Editorial changes

For more information about any editorial changes made in this compilation, see the endnotes.

Modifications

If the compiled law is modified by another law, the compiled law operates as modified but the modification does not amend the text of the law. Accordingly, this compilation does not show the text of the compiled law as modified. For more information on any modifications, see the series page on the Legislation Register for the compiled law.

Self‑repealing provisions

If a provision of the compiled law has been repealed in accordance with a provision of the law, details are included in the endnotes.

20‑135................... No amount included if earlier disposal for market value. 132

20‑140................... Reducing the amount to be included if there has been an earlier disposal 132

Miscellaneous rules134

20‑145................... No amount included if you inherited the car................... 134

20‑150................... Reducing the amount to be included if another provision requires you to include an amount for the disposal........................................................................................ 134

20‑155................... Exception for particular cars taken on hire...................... 134

20‑157................... Exception for small business entities.............................. 135

Disposals of interests in a car: special rules apply135

20‑160................... Disposal of an interest in a car........................................ 135

Part 2‑5—Rules about deductibility of particular kinds of amounts136

Division 25—Some amounts you can deduct136

Guide to Division 25 136

25‑1....................... What this Division is about............................................. 136

25‑115................... Deduction for payment of rent from land investment by operating entity to asset entity in relation to approved economic infrastructure facility....................................... 160

25‑120................... Transitional—deduction for payment of rent from land investment by operating entity to asset entity 161

(1) This Act contains provisions of the Income Tax Assessment Act 1936 in a rewritten form.

(2) If:

(a) that Act expressed an idea in a particular form of words; and

(b) this Act appears to have expressed the same idea in a different form of words in order to use a clearer or simpler style;

the ideas are not to be taken to be different just because different forms of words were used.

Note: A public or private ruling about a provision of the Income Tax Assessment Act 1936 is taken also to be a ruling about the corresponding provision of this Act, so far as the 2 provisions express the same ideas: see section 357‑85 in Schedule 1 to the Taxation Administration Act 1953.

Note: An effect of this provision is that people who acquire information under this Act are subject to the confidentiality obligations and exceptions in Division 355 in Schedule 1 to the Taxation Administration Act 1953.

This Act is designed to help you identify accurately and quickly the provisions that are relevant to your purpose in reading the income tax law.

The Act contains tables, diagrams and signposts to help you navigate your way.

You can start at Division 3 (What this Act is about) and follow the signposts as far into the Act as you need to go. You may also encounter signposts to several areas of the law that are relevant to you. Each one should be followed.

Sometimes they will lead down through several levels of detail. At each successive level, the rules are structured in a similar way. They will often be preceded by a Guide to the rules at that level. The rules themselves will usually deal first with the general or most common case and then with the more particular or special cases.

This Act is arranged in a way that reflects the principle of moving from the general case to the particular.

In this respect, the conceptual structure of the Act is something like a pyramid. The pyramid shape illustrates the way the income tax law is organised, moving down from the central or core provisions at the top of the pyramid, to general rules of wide application and then to the more specialised topics.

Note: The Taxation Administration Act 1953 contains the provisions on collection and recovery of tax and provisions on administration.

(2) Most defined terms in this Act are identified by an asterisk appearing at the start of the term: as in “*business”. The footnote that goes with the asterisk contains a signpost to the Dictionary definitions starting at section 995‑1.

In addition to the operative provisions themselves, this Act contains other material to help you identify accurately and quickly the provisions that are relevant to you and to help you understand them.

The first is the “Guides”. A Guide consists of sections under a heading indicating that what follows is a Guide to a particular Subdivision, Division etc.

Guides form part of this Act but are kept separate from the operative provisions. In interpreting an operative provision, a Guide may only be considered for limited purposes. These are set out in section 950‑150.

The other category consists of material such as notes and examples. These also form part of the Act. They are distinguished by type size from the operative provisions, but are not kept separate from them.

(1) Income tax is payable for each year by each individual and company, and by some other entities.

Note 1: Individuals who are Australian residents, and some trustees, are also liable to pay Medicare levy for each year. See the Medicare Levy Act 1986 and Part VIIB of the Income Tax Assessment Act 1936.

Note 2: Income tax is imposed by the Income Tax Act 1986 and the other Acts referred to in the definition of income tax in section 995‑1.

(2) Most entities have to pay instalments of income tax before the income tax they actually have to pay can be worked out.

(3) This Act answers these questions:

1. What instalments of income tax do you have to pay? When and how do you pay them?

See Schedule 1 to the Taxation Administration Act 1953.

2. How do you work out how much income tax you must pay?

See Division 4, starting at section 4‑1.

3. What happens if your income tax is more than the instalments you have paid? When and how must you pay the rest?

See Division 5 of this Act and Part 4‑15 in Schedule 1 to the Taxation Administration Act 1953.

4. What happens if your income tax is less than the instalments you have paid? How do you get a refund?

See Division 3A of Part IIB of the Taxation Administration Act 1953.

5. What are your other obligations as a taxpayer, besides paying instalments and the rest of your income tax?

See section 3‑10.

6. Do you have any other obligations under the income tax law?

See section 3‑15.

7. If a dispute between you and the Commissioner of Taxation cannot be settled by agreement, what procedures for objection, review and appeal are available?

See Part IVC (sections 14ZL to 14ZZS) of the Taxation Administration Act 1953.

(1) Besides paying instalments and the rest of your income tax, your main obligations as a taxpayer are:

(a) to keep records and provide information as required by:

·the Income Tax Assessment Act 1936; and

·Division 900 (which sets out substantiation rules) of this Act; and

(b) to lodge income tax returns as required by:

·the Income Tax Assessment Act 1936.

Tax file numbers

(2) Under Part VA of the Income Tax Assessment Act 1936, a tax file number can be issued to you. You are not obliged to apply for a tax file number. However, if you do not quote one in certain situations:

·you may become liable for instalments of income tax that would not otherwise have been payable;

·the amount of certain of your instalments of income tax may be increased.

If a provision of this Act uses the expression you, it applies to entities generally, unless its application is expressly limited.

Note 1: The expression you is not used in provisions that apply only to entities that are not individuals.

Note 2: For circumstances in which the identity of an entity that is a managed investment scheme for the purposes of the Corporations Act 2001 is not affected by changes to the scheme, see Subdivision 960‑E of the Income Tax (Transitional Provisions) Act 1997.

(2) Your income tax is worked out by reference to your taxable income for the income year. The income year is the same as the *financial year, except in these cases:

(a) for a company, the income year is the previous financial year;

(b) if you have an accounting period that is not the same as the financial year, each such accounting period or, for a company, each previous accounting period is an income year.

Note 1: The Commissioner can allow you to adopt an accounting period ending on a day other than 30 June. See section 18 of the Income Tax Assessment Act 1936.

Note 2: An accounting period ends, and a new accounting period starts, when a partnership becomes, or ceases to be, a VCLP, an ESVCLP, an AFOF or a VCMP. See section 18A of the Income Tax Assessment Act 1936.

(3) Work out your income tax for the *financial year as follows:

Method statement

Step 1. Work out your taxable income for the income year.

To do this, see section 4‑15.

Step 2. Work out your basic income tax liability on your taxable income using:

(a) the income tax rate or rates that apply to you for the income year; and

(b) any special provisions that apply to working out that liability.

See the Income Tax Rates Act 1986 and section 4‑25.

Step 3. Work out your tax offsets for the income year. A tax offset reduces the amount of income tax you have to pay.

For the list of tax offsets, see section 13‑1.

Step 4. Subtract your *tax offsets from your basic income tax liability. The result is how much income tax you owe for the *financial year.

Note 1: Division 63 explains what happens if your tax offsets exceed your basic income tax liability. How the excess is treated depends on the type of tax offset.

Note 2: Section 4‑11 of the Income Tax (Transitional Provisions) Act 1997 (which is about the temporary budget repair levy) may increase the amount of income tax worked out under this section.

Income tax worked out on another basis

(4) For some entities, some or all of their income tax for the *financial year is worked out by reference to something other than taxable income for the income year.

Step 3. Subtract your deductions from your assessable income (unless they exceed it). The result is your taxable income. (If the deductions equal or exceed the assessable income, you don’t have a taxable income.)

Note: If the deductions exceed the assessable income, you may have a tax loss which you may be able to utilise in that or a later income year: see Division 36.

(2) There are cases where taxable income is worked out in a special way:

Item

For this case ...

See:

1.

A company does not maintain continuity of ownership and control during the income year and does not satisfy the business continuity test

Subdivision 165‑B

1B.

An entity is a *member of a *consolidated group at any time in the income year

Part 3‑90

2.

A company becomes a PDF (pooled development fund) during the income year, and the PDF component for the income year is a nil amount

section 124ZTA of the Income Tax Assessment Act 1936

3.

A shipowner or charterer:

has its principal place of business outside Australia; and

carries passengers, freight or mail shipped in Australia

section 129 of the Income Tax Assessment Act 1936

4.

An insurer who is a foreign resident enters into insurance contracts connected with Australia

sections 142 and 143 of the Income Tax Assessment Act 1936

5.

The Commissioner makes a default or special assessment of taxable income

sections 167 and 168 of the Income Tax Assessment Act 1936

6.

The Commissioner makes a determination of the amount of taxable income to prevent double taxation in certain treaty cases

section 24 of the International Tax Agreements Act 1953

Note: A life insurance company can have a taxable income of the complying superannuation class and/or a taxable income of the ordinary class for the purposes of working out its income tax for an income year: see Subdivision 320‑D.

The following provisions may increase your basic income tax liability beyond the liability worked out simply by applying the income tax rates to your taxable income:

(a) Subdivision 355‑G;

(b) subsection 392‑35(3).

Note 1: Subdivision 355‑G increases some entities’ tax liability by requiring them to pay extra income tax on government recoupments relating to R&D activities for which entitlements to tax offsets arise under Division 355.

Note 2: Subsection 392‑35(3) increases some primary producers’ tax liability by requiring them to pay extra income tax on their averaging components worked out under Subdivision 392‑C.

(1) This section tells you when income tax you must pay for a *financial year is due and payable.

Note: The Commissioner may defer the time at which the income tax is due and payable: see section 255‑10 in Schedule 1 to the Taxation Administration Act 1953.

(2) The income tax is only due and payable if the Commissioner makes an *assessment of your income tax for the year.

(3) However, if the Commissioner does make an *assessment of your income tax for the year, the tax may be taken to have been due and payable at a time before your assessment was made.

Note: This is to ensure that general interest charge begins to accrue from the same date for all like entities. General interest charge on unpaid income tax is calculated from when the tax is due and payable, not from when the assessment is made: see section 5‑15.

Original assessments—self‑assessment entities

(4) If you are a *self‑assessment entity, the income tax is due and payable on the first day of the sixth month after the end of the income year.

Example: If your income year is the same as the financial year, your income tax would be due and payable on 1 December.

Original assessments—other entities

(5) If you are not a *self‑assessment entity, the income tax is due and payable 21 days after the day (the return day) on or before which you are required to lodge your *income tax return with the Commissioner.

Note: For rules about income tax returns and when they are due, see Part IV of the Income Tax Assessment Act 1936.

(6) However, if you lodge your return on or before the return day and the Commissioner gives you a notice of *assessment (other than an amended assessment) after the return day, the income tax is due and payable 21 days after the Commissioner gives you the notice.

Amended assessments

(7) If the Commissioner amends your *assessment, any extra income tax resulting from the amendment is due and payable 21 days after the day on which the Commissioner gives you notice of the amended assessment.

Note: Shortfall interest charge may be payable, on any amount of extra income tax payable as a result of the amended assessment, for each day in the period that:

(a) starts at the time income tax was due and payable on your original assessment; and

(b) ends the day before the day on which the Commissioner gives you notice of the amended assessment.

An amount of *shortfall interest charge that you are liable to pay is due and payable 21 days after the day on which the Commissioner gives you notice of the charge.

Note: Shortfall interest charge is imposed if the Commissioner amends an assessment and the amended assessment results in an increase in some tax payable. For provisions about liability for shortfall interest charge, see Division 280 in Schedule 1 to the Taxation Administration Act 1953.

If an amount of income tax or *shortfall interest charge that you are liable to pay remains unpaid after the time by which it is due to be paid, you are liable to pay the *general interest charge on the unpaid amount for each day in the period that:

(a) starts at the beginning of the day on which the amount was due to be paid; and

(b) finishes at the end of the last day on which, at the end of the day, any of the following remains unpaid:

(i) the income tax or shortfall interest charge;

(ii) general interest charge on any of the income tax or shortfall interest charge.

Note 1: The general interest charge is worked out under Part IIA of the Taxation Administration Act 1953.

Note 2: Shortfall interest charge is worked out under Division 280 in Schedule 1 to that Act.

(1) Your assessable income includes income according to ordinary concepts, which is called ordinary income.

Note: Some of the provisions about assessable income listed in section 10‑5 may affect the treatment of ordinary income.

(2) If you are an Australian resident, your assessable income includes the *ordinary income you *derived directly or indirectly from all sources, whether in or out of Australia, during the income year.

(3) If you are a foreign resident, your assessable income includes:

(a) the *ordinary income you *derived directly or indirectly from all *Australian sources during the income year; and

(b) other *ordinary income that a provision includes in your assessable income for the income year on some basis other than having an *Australian source.

(4) In working out whether you have derived an amount of *ordinary income, and (if so) when you derived it, you are taken to have received the amount as soon as it is applied or dealt with in any way on your behalf or as you direct.

(1) Your assessable income also includes some amounts that are not*ordinary income.

Note: These are included by provisions about assessable income. For a summary list of these provisions, see section 10‑5.

(2) Amounts that are not*ordinary income, but are included in your assessable income by provisions about assessable income, are called statutory income.

Note 1: Although an amount is statutory income because it has been included in assessable income under a provision of this Act, it may be made exempt income or non‑assessable non‑exempt income under another provision: see sections 6‑20 and 6‑23.

Note 2: Many provisions in the summary list in section 10‑5 contain rules about ordinary income. These rules do not change its character as ordinary income.

(3) If an amount would be *statutory income apart from the fact that you have not received it, it becomes statutory income as soon as it is applied or dealt with in any way on your behalf or as you direct.

(4) If you are an Australian resident, your assessable income includes your *statutory income from all sources, whether in or out of Australia.

(5) If you are a foreign resident, your assessable income includes:

(a) your *statutory income from all *Australian sources; and

(b) other *statutory income that a provision includes in your assessable income on some basis other than having an *Australian source.

An amount of *ordinary income or *statutory income is non‑assessable non‑exempt income if a provision of this Act or of another *Commonwealth law states that it is not assessable income and is not *exempt income.

Note: Capital gains and losses on assets used to produce some types of non‑assessable non‑exempt income are disregarded (see section 118‑12).

For a summary list of provisions about non‑assessable non‑exempt income, see Subdivision 11‑B.

(1) You can deduct from your assessable income any loss or outgoing to the extent that:

(a) it is incurred in gaining or producing your assessable income; or

(b) it is necessarily incurred in carrying on a *business for the purpose of gaining or producing your assessable income.

Note: Division 35 prevents losses from non‑commercial business activities that may contribute to a tax loss being offset against other assessable income.

(2) However, you cannot deduct a loss or outgoing under this section to the extent that:

(a) it is a loss or outgoing of capital, or of a capital nature; or

(b) it is a loss or outgoing of a private or domestic nature; or

(c) it is incurred in relation to gaining or producing your *exempt income or your *non‑assessable non‑exempt income; or

(d) a provision of this Act prevents you from deducting it.

For a summary list of provisions about deductions, see section 12‑5.

(3) A loss or outgoing that you can deduct under this section is called a general deduction.

For the effect of the GST in working out deductions, see Division 27.

Note If you receive an amount as insurance, indemnity or other recoupment of a loss or outgoing that you can deduct under this section, the amount may be included in your assessable income: see Subdivision 20‑A.

If 2 or more provisions of this Act allow you deductions in respect of the same amount (whether for the same income year or different income years), you can deduct only under the provision that is most appropriate.

Provisions of the Income Tax Assessment Act 1997 are identified in normal text. The other provisions, in bold, are provisions of the Income Tax Assessment Act 1936.

Item

Income tax is payable by this kind of entity:

because of this provision:

1

An individual

section 4‑1

2

A company, that is:

a body corporate; or

an unincorporated body (except a partnership)

section 4‑1

3

A company that was a member of a wholly‑owned group if a former subsidiary in the group is treated as having disposed of leased plant and does not pay all of the income tax resulting from that treatment

section 45‑25

4

A superannuation provider in relation to a complying superannuation fund

sections 295‑5 and 295‑605

5

A superannuation provider in relation to a non‑complying superannuation fund

sections 295‑5 and 295‑605

6

A superannuation provider in relation to a complying approved deposit fund

section 295‑5

7

A superannuation provider in relation to a non‑complying approved deposit fund

section 295‑5

8

The trustee of a pooled superannuation trust

section 295‑5

8A

A sovereign entity

section 880‑55

9

A corporate limited partnership

section 94J

10

A mutual insurance association (as described in section 121)

section 121

11

A trustee (except one covered by another item in this table), but only in respect of some kinds of income of the trust

(1) For some entities, some or all of their income tax for the *financial year is worked out as described in the table.

Provisions of the Income Tax Assessment Act 1997 are identified in normal text. The other provisions, in bold, are provisions of the Income Tax Assessment Act 1936.

Item

This kind of entity is liable to pay income tax worked out by reference to:

See:

1

A company that was a member of a wholly‑owned group is jointly and severally liable to pay an amount of income tax if a former subsidiary in the group is treated as having disposed of leased plant and does not pay all of the income tax resulting from that treatment.

section 45‑25

2

A superannuation provider in relation to a complying superannuation fund is to be assessed and is liable to pay income tax on no‑TFN contributions income as well as on taxable income.

sections 295‑5 and 295‑605

3

A superannuation provider in relation to a non‑complying superannuation fund is to be assessed and is liable to pay income tax on no‑TFN contributions income as well as on taxable income.

sections 295‑5 and 295‑605

4

An RSA provider is to be assessed and is liable to pay income tax on no‑TFN contributions income as well as on taxable income.

sections 295‑5, 295‑605 and 320‑155

4A

An entity is liable to pay extra income tax on government recoupments relating to R&D activities for which entitlements to tax offsets arise under Division 355.

Subdivision 355‑G

5

An Australian resident individual with:

eligible foreign remuneration under section 23AF; or

foreign earnings under section 23AG;

(from working in a foreign country) is liable to pay income tax worked out by reference to his or her assessable income less some of his or her deductions.

section 23AF or 23AG

6

A trustee covered by item 11 in the table in section 9‑1 is liable to pay income tax worked out by reference to the net income of the trust for the income year.

sections 98, 99 and 99A

8

The trustee of a public trading trust is liable to pay income tax worked out by reference to the net income of the trust for the income year.

section 102S

9

An entity that is liable to pay income tax (worked out by reference to taxable income or otherwise) is also liable to pay income tax worked out by reference to diverted income or diverted trust income for the income year.

section 121H

10

An Australian insurer that re‑insures overseas can elect to pay, as agent for the re‑insurer, income tax worked out by reference to the amount of the re‑insurance premiums.

section 148

(2) For entities covered by an item in the table in subsection (1), the income year is the same as the *financial year, except in these cases:

(a) for a company, or an entity covered by item 2 or 3 in the table, the income year is the previous financial year;

(b) if an entity has an accounting period that is not the same as the financial year, each such accounting period or, for a company, each previous accounting period is an income year.

Note 1: The Commissioner can allow an entity to adopt an accounting period ending on a day other than 30 June. See section 18 of the Income Tax Assessment Act 1936.

Note 2: An accounting period ends, and a new accounting period starts, when a partnership becomes, or ceases to be, a VCLP, an ESVCLP, an AFOF or a VCMP. See section 18A of the Income Tax Assessment Act 1936.